This summary is based on the first quarter fiscal 2008 earnings call conducted by Erie Indemnity Co (ERIE: chart) on May 1, 2008.

President and CEO: John J. Brinling, Jr.
EVP and CFO: Philip A. Garcia
Manager and VP of Corporate Communications and Investor Relation: Karen Kraus Phillips

Key Investors Issues

- The earnings per share decreased to 51 cents from 88 cents in the prior year quarter.
- The management fee revenue was flat in the quarter versus prior year.
- The company repurchased 1,204,651 shares of its stock for a total cost of $60.9 million.

First Quarter Fiscal 2008 Financial Highlights

For the first quarter 2008, net income decreased by 46.8% to $30 million from $56.4 million at March 31, 2007.

On a per diluted share basis, net income decreased to 51 cents in the first quarter of 2008 compared to 88 cents last year.

The net operating income per share decreased 9.7% to 78 cents in the first quarter compared to 86 cents per share in last year. The earnings decrease in the first quarter was driven by net realized losses on investments due to changes in fair value in the firm’s common stock since it adopted FAS-159. The firm also recorded some impairment charges in its bonds and preferred stock.

The management fee revenue was basically flat in the first quarter.

The firm was able to offset the decrease in direct written premium from rate decreases by its property casualty group by increasing its policies in-force, and improving its policy retention rate. The management fee rate was 25% for the first quarters of both 2008 and 2007.

The company regularly evaluates its pricing and currently estimates that pricing actions are proved, filed, and considered for filing could reduce the direct written premium for the property casualty group by about $23.2 million during 2008. This is a slightly larger decrease than the $8.8 decrease projected at year-end. The additional rate decreases are driven by mandated rate rollbacks in Maryland homeowners, and Workers'' Comp Bureau loss cost changes in Pennsylvania''s workers'' comp business.

Segmented pricing in both auto and home where the firm offers lower prices to better risks has also accelerated the decline in average premium per policy. However, as indicated on the fourth quarter call, the company does believe that it will see moderation in pricing declines with evidence of some of the larger national companies taking rate increases in private passenger, auto and homeowners. Given the firm’s accident year loss experience and the market conditions that the firm is seeing at this time, it continues to project premium rate increases of about 2% or 3% overall for 2009. The trend toward increased policy growth continued in the first quarter of 2008; policies in-force and new written premiums continued to climb. The policy retention rate also continues to improve. The firm’s year-over-year policies in-force grew by over 94,000 policies, or 2.5% to over 3.9 million policies at March 31, 2008 compared to a growth of about 50,000 policies in the first quarter of 2007.

The new business premiums increased 3.3% to $94.5 million in the first quarter compared to $91.5 million in the first quarter of 2007.

The year-over-year average premium per policy was $969 and $991 at March 31, 2008 and 2007 respectively, a decrease of 2.2%.

The total cost to management operations increased by 0.7% during the first quarter of 2008.

Commissions to independent agents make up the majority of these costs. Commissions decreased $1.1 million in the first quarter of 2008, reflecting a decrease in the estimate for the firm’s agent bonuses. The decrease was offset by an increase in normal and accelerated rate commissions, driven by an increase in certain workers'' compensation commission rates, and the higher accelerated commissions due to more newly-appointed agents. The costs of the $50 Private Passenger Auto bonus, which we began in the second quarter of 2006, were $1.4 million in the first quarter of 2008. The cost of management operations, excluding commission costs, increased 4% for the first quarter of 2008.

Personnel costs, the firm’s second largest component in the cost of management operations, increased 9% or $3.1 million. This includes some expenses for management incentive plans, which increased $1.8 million. The first quarter of 2008 also includes $1.1 million for severance costs for an Executive Officer who resigned during the quarter.

All other operating costs decreased 4.9%, primarily due to $1.4 million decrease in professional fee expense.

The company’s estimate for growth in non-commission operating expenses for the year 2008 is around 9%. Much of the increase will be spent on information technology, as the firm begins its policy administration system replacement program in the second half of 2008. The management believes the additional expense for this program in 2008 will be about $10 million.